Illegal Villas Surge in Bali, Squeezing Formal Hotel Industry Despite Construction Moratorium

Bali's tourism industry is facing a paradox of market openness. While post-pandemic tourist arrivals show a positive recovery trend with relatively healthy occupancy rates, the stability of formal accommodation businesses—particularly star-rated hotels—is now under serious pressure.

The main cause is not a decline in visitor numbers, but the proliferation of unlicensed villas and private property rentals via digital platforms operating outside local spatial planning regulations.

Local governments continue to push for restrictions and spatial control, including a moratorium on new hotel construction in South Bali. However, this restriction on licensed formal accommodation supply runs counter to conditions on the ground: unregistered non-hotel accommodation such as private villas and short-term rentals continues to flow in without equivalent administrative barriers.

This imbalanced competition directly affects cost structures and pricing strategies. Star-rated hotels are bound by complex business licensing, local taxes, safety standards, and labor regulation compliance, while illegal accommodations operate with almost none of these obligations. This difference in cost structure allows unregistered properties to aggressively cut prices—a highly sensitive factor for budget-conscious tourist segments.

According to analysis by Colliers Indonesia's Senior Director of Advisory Services, Ferry Salanto, the competitive imbalance caused by the proliferation of illegal accommodation is gradually pressuring hotels' ability to raise their Average Daily Rate (ADR) and Revenue per Available Room (RevPAR). "While occupancy rates remain stable, star-rated hotel operators' ability to optimize room revenue has become far more limited and challenging," Ferry told Kompas.com on Wednesday (October 7, 2026).

The risk does not stop at weakened ADR and RevPAR values. This uncontrolled supply growth is also contributing to a trend of shortened length of stay at individual properties, as the presence of thousands of illegal accommodation options gives tourists high flexibility to move between places of stay during their time in Bali.